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Bullish Precious Metals Traders Just Saw the Inevitable; Gold and Silver Technicals

by on December 19, 2013 4:50 pm BST
 

Traders bullish precious metals either got their face ripped off or margin called on the inevitable: a taper by the Federal Reserve. The drivers in precious metals continue to decline with inflation well below targets and $10 billion less of Federal Reserve money printing.

Seasoned traders would have seen yesterday’s highs on the taper news nothing but market clearing. As shorts were squeezed, the market took it in the direction were fundamentals point. Gold went from a high of $1,242 to sub-$1,200 per ounce; silver increased to price action resistance of $20.30 and fell to $19.14 per ounce as the market digests the news from yesterday.

On the daily chart, expanded by two years, we see the downward movement of gold after price action was continuously rejected by the narrow, near-term trend line. The 20 EMA also acted as resistance and held price action at bay. Momentum is picking up slightly on the ADX, while the -DMI inclines steeply.

The stronger dollar, low inflation, and less monetary easing will continue to push gold to yearly lows to cap 2013 off. If price action hits the low, falls through or bounces off, we will have to reevaluate new near-term targets. However, Q1 target of $1,038 remains intact and valid, both technically and fundamentally.

1D Chart of GC (2Y)

1D Chart of SI (2Y)

1D Chart of SI (2Y)

Silver felt the brunt of the bears. After hitting $20.30 per ounce yesterday, traders took it down over $1 per ounce, or more than five percent, in less than 24 hours. Price action is currently resting on price action support, but sentiment alone is likely to push silver sub-$19 per ounce. A pullback to $19.50 may be in order given the steep decline, but the trend – as it has been all year – is down.

Silver can hit $18.61 per ounce, which may offer some demand prior to reaching the low of $18.17 per ounce.